India is considering a major shift in its trade policy that could reshape the auto market. As part of its ongoing Free Trade Agreement (FTA) talks with the European Union, the government may drastically reduce import duties on cars — from the current level of over 100% to as low as 10%.
This potential cut in tariffs, if implemented, would not only impact global auto brands like Mercedes-Benz, BMW, Audi, and Volkswagen but could also trigger serious changes in pricing, competition, and local manufacturing dynamics.
Why This Matters Right Now
Today, India’s imported cars are hit with some of the highest tariffs in the world — frequently over 100%. For decades, they have shielded local automakers by making foreign cars very costly. But those days might be numbered.
As per people involved in the discussions, the government of India is willing to decrease tariffs in stages. The thinking is to do it gradually, reducing the import duty to even 10% for cars that come from the European Union. The target is to seal the overall India-EU trade agreement by the end of 2025.
This step would make high-end European vehicles much more accessible to Indian consumers while creating a bigger market for EU manufacturers.
Who Stands to Benefit?
If the tariff reductions are implemented, European automakers will be the largest gainers. Companies such as:
Mercedes-Benz
BMW
Volkswagen
Volvo
…would be able to import fully built units (CBUs) at much more competitive prices.
Even Tesla, set to start bringing cars to India, could benefit — particularly if it imports vehicles from its plant in Germany. Lower duties might make Tesla’s luxury electric cars more affordable to Indian consumers, and the company a much-needed boost in the competitive market.
What About Indian Carmakers?
Whereas shoppers are likely welcoming cheaper prices, Indian automakers are sounding warnings.
Industries like Tata Motors and Mahindra & Mahindra have made large investments in local assembly and electric vehicle research. They suggest that cutting import tariffs could damage their enterprise by overwhelming the market with low-cost foreign brands, taking away the incentive to assemble or produce in India.
Auto industry groups are calling on the government to tread carefully. They’re suggesting a 30% minimum tariff rather than cutting all the way to 10%. They’re also requesting the deferment of duty cuts on electric cars until at least 2029, in order to allow domestic firms to develop their EV expertise.
The Government’s Balancing Act
India’s Commerce Ministry is conducting the trade negotiations, which have included talks with key stakeholders such as the Ministry of Heavy Industries and domestic auto industry representatives.
Although the European Commission has noted “differences in ambition” between the two, there have been no formal announcements regarding the final terms of the deal.
The dilemma for India is evident — how to entice foreign investment and enhance consumer access to global-class cars without damaging domestic manufacturing and long-term EV plans.
How Soon Could This Happen?
The suggested duty cuts aren’t instant. If the FTA is signed by the end of 2025, the modifications would probably be phased out over the following years. This would allow Indian automakers to adjust and compete better.
Industry players think the ultimate deal could land somewhere in between the two poles — likely around 30% import duty, with tapered cuts for EVs.
Global Pressure Is Mounting
India is not alone in being subjected to pressure from the EU. The United States, too, has been demanding comparable trade relaxations. As international demand for EVs and high-end vehicles continues to grow, more auto companies are looking toward India as a key growth market.
But for that to occur, they need access to Indian buyers without being priced out by sky-high duties. So, there’s pressure on the Indian government to open up trade policies, even if it ruins local manufacturers in the short run.
What It Means for Car Buyers
If the import duty drops to even 30%, let alone 10%, it could significantly lower the price of high-end European cars in India. That’s great news for consumers who’ve been holding off on buying luxury models due to their steep price tags.
Here’s what buyers can expect if the proposal becomes reality:
Lower prices on imported vehicles — possibly by several lakhs
More variety in models, including those not currently available in India
Faster entry of newer technologies, especially in the EV segment
Increased competition, which could force both global and local carmakers to improve offerings and lower prices
Final Thoughts
India’s potential to cut car import tariffs is a biggie — not only for trade, but for the entire auto ecosystem. It would have the potential to alter the way cars are priced, sold, and made in the country. Although it may take two years to come through, the early indications are that Indian roads may soon be lined with much more European metal — at much friendlier prices.
The question now is how India will find the right balance — keeping local industry strong while making room for global competition.
